Objective, impartial advice for Property Investors and Landlords with a focus on the Edinburgh area

Wednesday, 5 July 2017

Buying to let in Edinburgh – is it immoral? (Part 1)

Who is to blame for the current housing crisis in Edinburgh
– can we blame the 55 to 70-year olds citizens?

Also known as the ‘Baby Boomer Generation’, these Edinburgh
people were born after the end of the Second World War as the country saw a
massive rise in births as they slowly recovered from the economic hardships
experienced during wartime.

Throughout the 1970’s and 1980’s, they experienced
(whilst in their 20’s, 30’s and 40’s) an unparalleled level of economic growth
and prosperity throughout their working lifetime on the back of improved
education, government subsidies, escalating property prices and technological
developments, they have emerged as a successful and prosperous generation.

…Yet some have suggested these Edinburgh
baby boomers have (and are) making too much money to the detriment of
their children, creating a ‘generational economic imbalance’, where mature
people benefit from house-price growth while their children are forced either
to pay massive rents or pay large mortgages.

Between
2001 and today, average earnings rose by 55% but average Edinburgh house prices
rose by 147%

The issue of housing is particularly acute with the
generation called the Millennials, who are young people born between the mid
1980’s and the late 1990’s. These 18 to 30 years, moulded by the computer and
internet revolution, are finding as they enter early adult life, very hard to
buy a property, as these ‘greedy’ landlords are buying up all the property to
rent out back to them at exorbitant rents… it’s no wonder these Millennials are
lashing out at buy to let landlords, as they are seen as the greedy, immoral,
wicked people who are cashing in on a social despair.

Like all things in life, we must look to the past, to
appreciate where we are now.

The three biggest influencing factors on the Edinburgh
(and the Scottish as well as the UK) property market in the later half of the
20thCentury were, firstly, the mass building of Council Housing in the 1950’s
and 60’s. Secondly, for the Tory’s to sell most of those Council Houses off in
the 1980’s and finally 15% interest rates in the early 1990’s which resulted many
houses being repossessed. It was these major factors that underpinned the
housing crisis we have today in Edinburgh.

To start with, in 1995 the USA relaxed its lending rules
by rewriting the Community Reinvestment Act. This Act saw a relaxation on the
Bank’s lending criteria’s as there was pressure on these banks to lend on
mortgages in low wage neighbourhoods, as the viewpoint in the USA was that
anyone (even someone on the minimum wage) any working class person should be
able to buy a home. Unsurprisingly, the UK followed suit in the early
2000’s, as Banks and Building Society’s relaxed their lending criteria and
brought to the market 100% mortgages, even Northern Rock started lending every
man and his dog 125% mortgages.

So when we roll the clock forward to today, and we can
observe those very same footloose banks from the early/mid 2000’s (that lent
125% with a just note from your Mum and a couple of breakfast cereal tokens),
ironically reciting the Bank of England backed hymn-sheet of
responsible-lending. On every first time buyer mortgage application, they are
now looking at every line on the 20-something’s banks statements, asking if
they are spending too much on socialising and holidays… no wonder these Millennials
are afraid to ask for a mortgage (as more often than not after all that – the
answer is negative).

Conversely, you have relatively unregulated Buy To Let
mortgages. As long as you have a 25% deposit, have a pulse, pass a few very
basic yardsticks and have a reasonable job, the banks will literally throw
money at you… I mean Virgin Money are offering 2.59% fixed for 3 years – so
cheap!

So, in Part Two next week, I will continue this emotive
article and show you some very interesting findings on why young people
aren’t buying property anymore (and it’s not what you think!).

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About This Blog

This blog follows the buy to let market in Edinburgh. You'll find tips, guidance, and analysis that relates specifically to Edinburgh and you'll also find properties from all the estate agents in the city on here that may make decent investments.

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Robert Young

I operate The Key Place and if you're thinking of buying a property to let in Edinburgh, I'll be happy to advise or just offer a second opinion. I can be contacted on news@thekeyplace.co.uk, or 0131 603 4570.